Good Morning Traders,
As of this writing 5:30 AM EST, here’s what we see:
US Dollar –Up at 82.525 the US Dollar is up 18 ticks and is trading at 82.525.
Energies – May Oil is down at 87.95.
Financials – The June 30 year bond is down 3 ticks and is trading at 147.27.
Indices – The June S&P 500 emini ES contract is up at 1550.00 and is up 26 ticks.
Gold – The June gold contract is trading up at 1376.30 and is up 152 ticks from its close.
Quick Note: Unless otherwise shown the above contract months are now June.
Initial Conclusion: This is not a correlated market. The dollar is up+ and oil is down- which is normal but the 30 year bond is trading lower. The Financials should always correlate with the US dollar such that if the dollar is lower then bonds should follow and vice versa. The indices are up and the US dollar is trading higher which is not correlated. Gold is trading higher which is not correlated with the US dollar trading up. I tend to believe that Gold has an inverse relationship with the US Dollar as when the US Dollar is down, Gold tends to rise in value and vice-versa. Think of it as a seesaw, when one is up the other should be down. I point this out to you to make you aware that when we don't have a correlated market, it means something is wrong. As traders you need to be aware of this and proceed with your eyes wide open.
Asia closed mixed with the Shanghai, Sensex and Singapore higher and the rest of Asia closed lower. As of this writing all of Europe is trading lower.
Possible challenges to traders today is the following
1. FOMC Member Dudley speaks at 8 AM EST. This is not major.
2. Core CPI is out at 8:30 AM EST. This is major.
3. CPI is out at 8:30 AM EST. This is major
4. Building Permits are out at 8:30 AM EST. This is major.
5. Housing Starts are out at 8:30 AM EST. This is major.
6. ECB President Mario Draghi speaks at 9 AM EST.
7. Capacity Utilization Rate is out at 9:15 AM EST. This is not major.
8. Industrial Production is out at 9:15 AM EST. This is not major.
9. Treasury Secretary Lew speaks at 10 AM EST.
10. FOMC Member Duke speak st 12 Noon.
11. FOMC Member Yellen speaks at 3 PM EST.
12. Treasury Secretary Lew speaks at 3 PM EST...again
Yesterday we said our bias was neutral because the markets weren't correlated and we felt the markets could go in any direction. We also advised readers to avoid trading if you didn't have an open position. The net result? The Dow dropped 266 points and logged the worse performance in 5 months. Today the markets aren't correlated but our bias is to the upside. Why? We feel that after yesterday's sell off, the markets are due for a rebound. Could this change? Of Course. Remember anything can happen in a volatile market.
It is amazing to me that China, who little more than a decade ago was not considered a world economic power could post a GDP number within 3 tenths of a point off could such a calamity worldwide. It could only mean that the rest of the world must owe China money. In the United States this kind of news wouldn't be considered welcome news either but I don't think it would set off a worldwide event which is exactly what happened yesterday. Gold fell, oil fell and the markets weren't correlated. Oil fell with the expectation that if things weren't great in China then there wouldn't be as much demand worldwide. This is to be expected. What I think really shocked everyone was gold. We haven't seen gold drop this much in one day since the 1980's. Gold is starting to rebound now but only time will tell if it can recapture its luster. Along with Gold the futures are starting to rebound as well but as in all things we'll have to monitor and see.
As readers are probably aware I don't trade equities. While we're on this discussion, let's define what is meant by a good earnings report. A company must exceed their prior quarter's earnings per share and must provide excellent forward guidance. Any falloff between earning per share or forward guidance will not bode well for the company's shares. This is one of the reasons I don't trade equities but prefer futures. There is no earnings reports with futures and we don't have to be concerned about lawsuits, scandals, malfeasance, etc.
Anytime the market isn't correlated it's giving you a clue that something isn't right and you should proceed with caution. Today our bias is to the upside. Could this change? Of course. In a volatile market anything can happen. We'll have to monitor and see.
On Friday, April 5th I had the opportunity to interview Carl Weiss from Algo Futures. We talked at length about his thoughts on the future of the markets and new and upcoming endeavors. Ultimately this is the story of an American entrepreneur and what he had to go thru to create a solution that can be used by any trader. If any reader wants to know and is curious about what it takes to be self-made in America, then you need to listen to this. Additionally our friends at TradersLog.com have graciously published my article on this subject. It can be viewed at:
http://www.traderslog.com/interview-with-carl-weiss/ My interview with Carl can be viewed at:
Please note the video is about a half hour in length and we plan on producing more in the near future. Also note that in the near future we will have other videos where we will interview various trading leaders.
As I write this the crude markets are trading lower and the US Dollar is advancing. This is normal. Think of it this way. If the stock market is trading lower, it's safe to assume that the crude market will follow suit and vice versa. Crude trades with the expectation that business activity is expanding. The barometer of which is the equities or stock market. If you view both the crude and index futures side by side you will notice this. Yesterday crude dropped to a low of 86.06 a barrel in the overnight session and as of this writing is starting to rebound. We'll have to monitor and see if crude either goes lower or holds at the present level. We'll have to see where crude falls to before we can establish a support and resistance level. At this time crude can fall further. This could change. All we need do is look at what happened last fall when crude was trading over $100.00 a barrel. We'll have to monitor and see. Remember that crude is the only commodity that is reflected immediately at the gas pump.
- Budget Battle - ongoing.
- Debt Ceiling in the August time frame.
- European Contraction - happening now
Crude oil is trading lower and the US Dollar is advancing. This is normal. Crude typically makes 3 major moves (long or short) during the course of any trading day: around 7 AM EST, 9 AM EST and 2 PM EST when the crude market closes. If crude makes major moves around those time frames, then this would suggest normal trending, if not it would suggest that something is not quite right. If you feel compelled to trade consider doing so after 10 AM when the markets give us better direction. As always watch and monitor your order flow as anything can happen in this market. This is why monitoring order flow in today's market is crucial. We as traders are faced with numerous challenges that we didn't have a few short years ago. High Frequency Trading is one of them. I'm not an advocate of scalping however in a market as volatile as this scalping is an alternative to trend trading.
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Remember that without knowledge of order flow we as traders are risking our hard earned capital and the Smart Money will have no issue taking it from us. Regardless of whatever platform you use for trading purposes you need to make sure it's monitoring order flow. Sceeto does an excellent job at this. To fully capitalize on this newsletter it is important that the reader understand how the various market correlate. More on this in subsequent blogs.
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